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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______________ to _______________ 
Commission File Number: 001-31458 
Drive Shack Inc.
(Exact name of registrant as specified in its charter)
Maryland 81-0559116
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
10670 N. Central Expressway, Suite 700, Dallas, TX
 75231
(Address of principal executive offices) (Zip Code)
(646) 585-5591
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbols(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareDS
New York Stock Exchange (NYSE)
9.75% Series B Cumulative Redeemable Preferred Stock, $0.01 par value per shareDS-PB
New York Stock Exchange (NYSE)
8.05% Series C Cumulative Redeemable Preferred Stock, $0.01 par value per shareDS-PC
New York Stock Exchange (NYSE)
8.375% Series D Cumulative Redeemable Preferred Stock, $0.01 par value per shareDS-PD
New York Stock Exchange (NYSE)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes S No £
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). S Yes   £ No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer £ Accelerated filer S Non-accelerated filer £ Smaller reporting company  Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. £
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No S
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date.
Common stock, $0.01 par value per share: 92,070,177 shares outstanding as of May 1, 2021.



CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This report contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to, among other things, (i) the timing and conditions under which we may reopen any of our entertainment golf venues, (ii) the operation of our entertainment golf venues and traditional golf courses in light of the ongoing COVID-19 pandemic following their reopening and the opening of new venues, (iii) our ability to remain competitive within the leisure and entertainment industry during the ongoing COVID-19 pandemic, (iv) the adequacy of our cash flows from operations and available cash to meet our liquidity needs, including in the event of a prolonged reclosure of our venues, (v) our ability to modify the timing of certain contractual payments owed, (vi) our ability to obtain additional financing and (vii) the potential impact of COVID-19 on our results of operations. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “endeavor,” “seek,” “anticipate,” “estimate,” “overestimate,” “underestimate,” “believe,” “could,” “project,” “forecast,” “predict,” “continue” or other similar words or expressions. Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain projections of results of operations or of financial condition or state other forward-looking information. Our ability to predict results or the actual outcome of future plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from forecasted results. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:

our ability to fully reopen and/or avoid future closures of our venues;
factors impacting attendance, such as local conditions, contagious diseases, including COVID-19, and the availability of an effective vaccine, or the perceived threat of contagious diseases, disturbances, natural disasters, and terrorist activities;
regulations and guidance of federal, state and local governments and health officials regarding the response to the ongoing COVID-19 pandemic, including with respect to business operations, safety protocols and public gatherings;
our financial liquidity and ability to access capital;
the ability to retain and attract members and guests to our properties;
changes in global, national and local economic conditions, including, but not limited to, increases in unemployment levels, changes in consumer spending patterns, a prolonged economic slowdown and a downturn in the real estate market, particularly due to the COVID-19 pandemic;
effects of unusual weather patterns and extreme weather events, geographical concentrations with respect to our operations and seasonality of our business;
competition within the industries in which we operate or may pursue additional investments, including competition for sites for our Entertainment Golf venues;
material increases in our expenses, including, but not limited to, unanticipated labor issues, rent or costs with respect to our workforce, and costs of goods, utilities and supplies;
our inability to sell or exit certain properties, and unforeseen changes to our ability to develop, redevelop or renovate certain properties;
our ability to further invest in our business and implement our strategies;
difficulty monetizing our real estate debt investments;
liabilities with respect to inadequate insurance coverage, accidents or injuries on our properties, adverse litigation judgments or settlements, or membership deposits;
changes to and failure to comply with relevant regulations and legislation, including in order to maintain certain licenses and permits, and environmental regulations in connection with our operations;
inability to execute on our growth and development strategy by successfully developing, opening and operating new venues;
impacts of any failures of our information technology and cybersecurity systems;
the impact of any current or further legal proceedings and regulatory investigations and inquiries; and
other risks detailed from time to time, particularly under the heading “Risk Factors” in this report, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and in our subsequent filings with the Securities and Exchange Commission (the "SEC").

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. The factors noted above could cause our actual results to differ significantly from those contained in any forward-looking statement.

Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our management’s views only as of the date of this report. We are under no duty to update any of the forward-looking statements after the date of this report to conform these statements to actual results.



SPECIAL NOTE REGARDING EXHIBITS
 
In reviewing the agreements included as exhibits to this Quarterly Report on Form 10-Q, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about Drive Shack Inc. (the “Company” or the “Registrant”) or the other parties to the agreements.  The agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
 
should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and
were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time.  Additional information about the Company may be found elsewhere in this Quarterly Report on Form 10-Q and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.
 
The Company acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this report not misleading.
 




DRIVE SHACK INC.  
FORM 10-Q
INDEX
PAGE
 
 
 
 
 
 



PART I.   FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

DRIVE SHACK INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
(unaudited)
March 31, 2021December 31, 2020
Assets
Current assets
Cash and cash equivalents$85,936 $47,786 
Restricted cash2,852 2,252 
Accounts receivable, net5,143 4,446 
Real estate securities, available-for-sale3,271 3,223 
Other current assets17,754 14,410 
Total current assets114,956 72,117 
Restricted cash, noncurrent795 795 
Property and equipment, net of accumulated depreciation167,663 169,425 
Operating lease right-of-use assets195,280 192,828 
Intangibles, net of accumulated amortization14,574 15,124 
Other assets6,593 6,765 
Total assets$499,861 $457,054 
Liabilities and Equity
Current liabilities
Obligations under finance leases$6,180 $6,470 
Membership deposit liabilities14,748 14,692 
Accounts payable and accrued expenses26,308 29,596 
Deferred revenue20,079 23,010 
Other current liabilities27,504 28,217 
Total current liabilities94,819 101,985 
Credit facilities and obligations under finance leases - noncurrent11,653 12,751 
Operating lease liabilities - noncurrent173,528 167,837 
Junior subordinated notes payable51,180 51,182 
Membership deposit liabilities, noncurrent101,853 99,862 
Deferred revenue, noncurrent10,983 9,953 
Other liabilities3,463 3,447 
Total liabilities$447,479 $447,017 
Commitments and contingencies
Equity
Preferred stock, $0.01 par value, 100,000,000 shares authorized, 1,347,321 shares of 9.75% Series B Cumulative Redeemable Preferred Stock, 496,000 shares of 8.05% Series C Cumulative Redeemable Preferred Stock, and 620,000 shares of 8.375% Series D Cumulative Redeemable Preferred Stock, liquidation preference $25.00 per share, issued and outstanding as of March 31, 2021 and December 31, 2020
$61,583 $61,583 
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 92,027,806 and 67,323,592 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively
919 673 
Additional paid-in capital3,232,713 3,178,704 
Accumulated deficit(3,244,225)(3,232,391)
Accumulated other comprehensive income1,392 1,468 
Total equity$52,382 $10,037 
Total liabilities and equity$499,861 $457,054 

See notes to Consolidated Financial Statements.
1


DRIVE SHACK INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(dollars in thousands, except share data)
 Three Months Ended March 31,
 20212020
Revenues  
Golf operations$53,161 $48,625 
Sales of food and beverages7,930 12,510 
Total revenues61,091 61,135 
Operating costs
Operating expenses48,870 54,367 
Cost of sales - food and beverages2,104 3,655 
General and administrative expense7,982 9,818 
Depreciation and amortization6,245 6,794 
Pre-opening costs556 552 
Loss on lease terminations and impairment3,209 792 
Total operating costs68,966 75,978 
Operating loss(7,875)(14,843)
Other income (expenses)
Interest and investment income153 130 
Interest expense, net(2,626)(2,745)
Other income (loss), net(61)367 
Total other income (expenses)(2,534)(2,248)
Loss before income tax(10,409)(17,091)
Income tax expense 495 271 
Net loss(10,904)(17,362)
Preferred dividends(1,395)(1,395)
Loss applicable to common stockholders$(12,299)$(18,757)
Loss applicable to common stock, per share  
Basic$(0.15)$(0.28)
Diluted$(0.15)$(0.28)
Weighted average number of shares of common stock outstanding  
Basic82,558,881 67,069,534 
Diluted82,558,881 67,069,534 

See notes to Consolidated Financial Statements.
2


DRIVE SHACK INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited)
(dollars in thousands, except share data)
 Three Months Ended March 31,
 20212020
Net loss$(10,904)$(17,362)
Other comprehensive loss:  
Net unrealized loss on available-for-sale securities(76)(38)
Other comprehensive loss(76)(38)
Total comprehensive loss $(10,980)$(17,400)
Comprehensive loss attributable to Drive Shack Inc. stockholders’ equity$(10,980)$(17,400)
  
See notes to Consolidated Financial Statements.
3


DRIVE SHACK INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
(dollars in thousands, except share data)
Drive Shack Inc. Stockholders
 Preferred StockCommon Stock
 SharesAmountSharesAmountAdditional Paid-
in Capital
Accumulated
Deficit
Accumulated Other Comp.
Income
Total Equity (Deficit)
Equity (deficit) - December 31, 20202,463,321 $61,583 67,323,592 $673 $3,178,704 $(3,232,391)$1,468 $10,037 
Dividends declared— — — — — (930)— (930)
Stock-based compensation— — — — 350 — — 350 
Shares issued from options and restricted stock units— — 745,881 7 (7)— —  
Shares issued from equity raise— — 23,958,333 239 53,666 — — 53,905 
Comprehensive income (loss)
Net loss— — — — — (10,904)— (10,904)
Other comprehensive loss— — — — — — (76)(76)
Total comprehensive loss(10,980)
Equity (deficit) - March 31, 20212,463,321 $61,583 92,027,806 $919 $3,232,713 $(3,244,225)$1,392 $52,382 
Equity (deficit) - December 31, 20192,463,321 $61,583 67,068,751 $671 $3,177,183 $(3,175,572)$1,710 $65,575 
Dividends declared— — — — — (465)— (465)
Stock-based compensation— — — — 201 — — 201 
Shares issued from restricted stock units— — 1,762 — — — — 
Comprehensive income (loss)
Net loss— — — — — (17,362)— (17,362)
Other comprehensive income— — — — — — (38)(38)
Total comprehensive loss$(17,400)
Equity (deficit) - March 31, 20202,463,321 $61,583 67,070,513 $671 $3,177,384 $(3,193,399)$1,672 $47,911 


See notes to Consolidated Financial Statements.
4



DRIVE SHACK INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(dollars in thousands, except share data)
 Three Months Ended March 31,
 20212020
Cash Flows From Operating Activities  
Net loss$(10,904)$(17,362)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization6,245 6,794 
Amortization of discount and premium(126)(91)
Other amortization2,000 1,904 
Amortization of revenue on golf membership deposit liabilities(564)(364)
Amortization of prepaid golf membership dues(6,467)(4,076)
Non-cash operating lease expense107 958 
Stock-based compensation349 201 
 Loss on lease terminations and impairment3,209 792 
Equity in earnings, net of impairment from equity method investments (344)
Other losses, net182 46 
Change in:
Accounts receivable, net, other current assets and other assets - noncurrent(3,868)3,913 
Accounts payable and accrued expenses, deferred revenue, other current liabilities and other liabilities - noncurrent2,281 5,052 
Net cash used in operating activities(7,556)(2,577)
Cash Flows From Investing Activities  
Proceeds from sale of property and equipment 91 
Acquisition and additions of property and equipment and intangibles(6,542)(6,573)
Net cash used in investing activities(6,542)(6,482)
Cash Flows From Financing Activities
Repayments of debt obligations(1,685)(1,484)
Golf membership deposits received815 489 
Proceeds from issuance of common stock53,905  
Preferred stock dividends paid (1,395)
Other financing activities(187)(176)
Net cash provided by (used in) financing activities52,848 (2,566)
Net Increase (Decrease) in Cash and Cash Equivalents, Restricted Cash and Restricted Cash, noncurrent38,750 (11,625)
Cash and Cash Equivalents, Restricted Cash and Restricted Cash, noncurrent, Beginning of Period50,833 31,964 
Cash and Cash Equivalents, Restricted Cash and Restricted Cash, noncurrent, End of Period$89,583 $20,339 
Supplemental Schedule of Non-Cash Investing and Financing Activities
Preferred stock dividends declared but not paid$930 $ 
Additions to finance lease assets and liabilities$298 $1,028 
(Decreases)/increases in accounts payable and accrued expenses related to the purchase of property and equipment$(1,916)$3,771 

See notes to Consolidated Financial Statements.
5

DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
MARCH 31, 2021
(dollars in tables in thousands, except share data)

1. ORGANIZATION
Drive Shack Inc., a Maryland corporation, was formed in 2002, and its common stock is traded on the NYSE under the symbol “DS.” Drive Shack Inc., together with its subsidiaries, is referenced herein as "Drive Shack Inc.", "the Company", "we", or "our". The Company owns and operates golf-related leisure and entertainment venues and courses focused on bringing people together through competitive socializing, by combining sports and entertainment with elevated food and beverage offerings.
The Company conducts its business through the following segments: (i) Entertainment Golf, (ii) Traditional Golf and (iii) corporate. For a further discussion of the reportable segments, see Note 4.
As of March 31, 2021, the Company's Entertainment Golf segment was comprised of four owned or leased entertainment golf venues across three states with locations in Orlando, Florida; West Palm Beach, Florida; Raleigh, North Carolina; and Richmond, Virginia. This segment also includes the Company's newest entertainment golf brand, Puttery, which is currently under development with the first two venues expected to debut in summer 2021.
The Company’s Traditional Golf segment is one of the largest operators of traditional golf properties in the United States. As of March 31, 2021, the Company owned, leased or managed 60 traditional golf properties across nine states.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

COVID-19 In March 2020, a global pandemic was declared by the World Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus (“COVID-19”). In response to the rapid spread of COVID-19, authorities around the world implemented numerous measures to contain the virus, such as travel bans and restrictions, quarantines, "stay-at-home" or "shelter-in-place" orders and business shutdowns. Many jurisdictions in which we operate required mandatory store closures or imposed capacity limitations and other restrictions affecting our operations. As a result, during March 2020, we temporarily closed all of our Entertainment Golf venues and substantially all of our Traditional Golf courses and furloughed a substantial majority of our employees. In response to the uncertainty caused by the pandemic, we took several actions after we suspended operations to preserve our liquidity position and prepare for multiple contingencies.

Following the temporary closure of our venues in March 2020 in response to the COVID-19 pandemic, three of our four Drive Shack Entertainment Golf venues and all of our Traditional Golf properties were reopened by the end of the second quarter, subject to locally mandated capacity limitations and operational restrictions. Our Entertainment Golf venue in Orlando, Florida re-opened in December 2020. Restrictions on large group gatherings remain in effect in the majority of the jurisdictions in which we operate, which has resulted in the postponement or cancellation of the substantial majority of events, banquets, and other large group gatherings.

The extended length of the COVID-19 pandemic and the related government response have caused, and are continuing to cause, prolonged periods of various operational restrictions and capacity limitations impacting our business operations. In addition, the duration and intensity of the pandemic may result in changes in customer behaviors or preferences. These may lead to increased asset recovery and valuation risks, such as impairment of long-lived and other assets. The extent to which COVID-19 ultimately impacts our business will depend on future developments, which remain highly uncertain and cannot be predicted, including additional actions taken by various governmental bodies and private enterprises to contain COVID-19 or mitigate its impact, among others. The Company currently expects these developments to have a material adverse impact on its revenues, results of operations and cash flows in future periods.

Basis of Presentation The accompanying Consolidated Financial Statements and related notes of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under U.S. generally accepted accounting principles, or GAAP, have been condensed or omitted. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These financial statements should be read in conjunction with the Company’s Consolidated Financial Statements for the year ended December 31, 2020 and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on March 16, 2021. Capitalized terms used herein, and not otherwise defined, are defined in the Company’s Consolidated Financial Statements for the year ended December 31, 2020. There have been no
6

DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2021
(dollars in tables in thousands, except share data)
significant changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

The Company’s significant accounting policies for these financial statements as of March 31, 2021 are summarized below and should be read in conjunction with the Summary of Significant Accounting Policies detailed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Use of Estimates – Our estimates are based on information available to management at the time of preparation of the Consolidated Financial Statements, including the result of historical analysis, our understanding and experience of the Company’s operations, our knowledge of the industry and market-participant data available to us. Actual results have historically been in line with management’s estimates and judgments used in applying each of the accounting policies and management periodically re-evaluates accounting estimates and assumptions. Actual results could differ from these estimates and materially impact our Consolidated Financial Statements. However, the Company does not expect our assessments and assumptions to materially change in the future.

Real Estate, Held-for-Sale Long-lived assets to be disposed of by sale, which meet certain criteria, are reclassified to real estate held-for-sale and measured at the lower of their carrying amount or fair value less costs to sell. The Company suspends depreciation and amortization for assets held-for-sale. Subsequent changes to the estimated fair value less costs to sell could impact the measurement of assets held-for-sale. Decreases below carrying value are recognized as an impairment loss and recorded in "Loss on lease terminations and impairment" on the Consolidated Statements of Operations. To the extent the fair value increases, any previously reported impairment is reversed to the extent of the impairment taken.

On March 7, 2018, the Company announced it was actively pursuing the sale of 26 owned Traditional Golf properties in order to generate capital for reinvestment in the Entertainment Golf business. On October 16, 2020, the Company completed the sale of that remaining held-for-sale Traditional Golf property for a sale price of $34.5 million and received net cash proceeds of approximately $33.6 million. As of March 31, 2021, the Company does not have any properties classified as held-for-sale.

Leasing Arrangements The Company evaluates at lease inception whether an arrangement is or contains a lease by providing the Company with the right to control an asset. Operating leases are accounted for on balance sheet with the Right of Use (“ROU”) assets and lease liabilities recognized in "Operating lease right-of-use assets," "Other current liabilities" and "Operating lease liabilities - noncurrent" in the Consolidated Balance Sheets. Finance lease ROU assets, current lease liabilities and noncurrent lease liabilities are recognized in "Property and equipment, net of accumulated depreciation," and "Obligations under finance leases" and "Credit facilities and obligations under finance leases - noncurrent" in the Consolidated Balance Sheets, respectively.

All lease liabilities are measured at the present value of the associated payments, discounted using the Company’s incremental borrowing rate determined using a portfolio approach based on the rate of interest that the Company would pay to borrow an amount equal to the lease payments for a similar term and in a similar economic environment on a collateralized basis. ROU assets, for both operating and finance leases, are initially measured based on the lease liability, adjusted for initial direct costs, prepaid rent, and lease incentives received. Operating leases are subsequently amortized into lease cost on a straight-line basis. Depreciation of the finance lease ROU assets is subsequently calculated using the straight-line method over the shorter of the estimated useful lives or the expected lease terms and recorded in "Depreciation and amortization" on the Consolidated Statements of Operations.

In addition to the fixed minimum payments required under the lease arrangements, certain leases require variable lease payments, which are payment of the excess of various percentages of gross revenue or net operating income over the minimum rental payments as well as payment of taxes assessed against the leased property. The leases generally also require the payment for the cost of insurance and maintenance. Variable lease payments are recognized when the associated activity occurs and contingency is resolved.

The Company has elected to combine lease and non-lease components for all lease contracts.

Other Investments The Company owns an approximately 22% economic interest in a limited liability company which owns preferred equity in a commercial real estate project. The Company accounts for this investment as an equity method investment. The Company evaluates its equity method investment for other-than-temporary impairment whenever events or changes in
7

DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2021
(dollars in tables in thousands, except share data)
circumstances indicate that the carrying amount of the investment might not be recoverable. The evaluation of recoverability is based on management’s assessment of the financial condition and near-term prospects of the commercial real estate project, the length of time and the extent to which the market value of the investment has been less than cost, availability and cost of financing, demand for space, competition for tenants, changes in market rental rates, and operating results. As these factors are difficult to predict and are subject to future events that may alter management’s assumptions, the values estimated by management in its recoverability analyses may not be realized, and actual losses or impairment may be realized in the future. As the fair value inputs utilized are unobservable, the Company determined that the significant inputs used to value this real estate investment fall within Level 3 for fair value reporting.

The operations and ongoing construction at the commercial real estate project halted due to the COVID-19 pandemic in mid-March 2020 and the Company recorded an other-than-temporary impairment charge of $24.7 million during the three months ended June 30, 2020. The other-than-temporary impairment charge was recorded in "Other income (loss), net" on the Consolidated Statements of Operations. The property reopened to the public with additional entertainment venues and retail shops in October 2020 while following COVID-19 related operational restrictions and capacity limitations, and implementing social distancing measures. However, the ability of the commercial real estate project to obtain additional funding to complete the construction and attain the financial results needed to recover any of our investment remains highly uncertain. The carrying value of the investment was zero as of both March 31, 2021, and December 31, 2020.

Impairment of Long-lived Assets The Company periodically reviews the carrying amounts of its long-lived assets, including real estate held-for-use and held-for-sale, as well as finite-lived intangible assets and right-of-use assets, to determine whether current events or circumstances indicate that such carrying amounts may not be recoverable. The assessment of recoverability is based on management’s estimates by comparing the sum of the estimated undiscounted cash flows generated by the underlying asset, or other appropriate grouping of assets, to its carrying value to determine whether an impairment existed at its lowest level of identifiable cash flows. If the carrying amount is greater than the expected undiscounted cash flows, the asset is considered impaired and an impairment is recognized to the extent the carrying value of such asset exceeds its fair value. The Company generally measures fair value by considering sale prices for similar assets or by discounting estimated future cash flows using an appropriate discount rate.

Other Current Assets

The following table summarizes the Company's other current assets:
March 31, 2021December 31, 2020
Managed property receivables$4,638 $3,236 
Prepaid expenses3,048 3,158 
Deposits1,223 767 
Inventory2,012 1,950 
Miscellaneous current assets, net6,833 5,299 
Other current assets$17,754 $14,410 
Other Assets

The following table summarizes the Company's other assets:
March 31, 2021December 31, 2020
Prepaid expenses$701 $2,154 
Deposits3,908 2,504 
Miscellaneous assets, net1,984 2,107 
Other assets$6,593 $6,765 

8

DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2021
(dollars in tables in thousands, except share data)
Other Current Liabilities

The following table summarizes the Company's other current liabilities:
March 31, 2021December 31, 2020
Operating lease liabilities$19,062 $19,894 
Accrued rent3,122 4,318 
Dividends payable930  
Miscellaneous current liabilities4,390 4,005 
Other current liabilities$27,504 $28,217 

Membership Deposit Liabilities - Private country club members in our Traditional Golf business generally pay an advance initiation fee deposit upon their acceptance as members to their respective country clubs. Initiation fee deposits are refundable 30 years after the date of acceptance as a member. The difference between the initiation fee deposit paid by the member and the present value of the refund obligation is deferred and recognized into Golf operations revenue in the Consolidated Statements of Operations on a straight-line basis over the expected life of an active membership, which is estimated to be seven years. The present value of the refund obligation is recorded as a membership deposit liability in the Consolidated Balance Sheets and accretes over a 30-year nonrefundable term using the effective interest method. This accretion is recorded as interest expense in the Consolidated Statements of Operations.

Other Income (Loss), Net — These items are comprised of the following:
 Three Months Ended March 31,
 20212020
Collateral management fee income, net$56 $72 
Equity in earnings, net of impairment from equity method investments 344 
Gain (loss) on sale of long-lived assets and intangibles(15)48 
Other loss(102)(97)
Other income (loss), net$(61)$367 

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The standard removes certain exceptions for investments, intraperiod allocations and interim tax calculations and adds guidance to reduce complexity in accounting for income taxes. The effective date of the standard is for annual periods beginning after December 15, 2020, with early adoption permitted. The various amendments in the standard are applied on a retrospective basis, modified retrospective basis and prospective basis, depending on the amendment. The Company adopted ASU 2019-12 as of the fiscal year beginning January 1, 2021. The adoption of ASU 2019-12 had no material impact on the Company's financial statements.

3. REVENUES

The majority of the Company’s revenue is recognized at the time of sale to customers at the Company’s Entertainment Golf venues and Traditional Golf properties, including green fees, cart rentals, bay play, events and sales of food, beverages and merchandise. Revenue from membership dues is recognized in the month earned. Membership dues received in advance are included in deferred revenue and recognized as revenue ratably over the appropriate period, which is generally twelve months or less for private club members and the following month for The Players Club members.

9

DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2021
(dollars in tables in thousands, except share data)
The Company’s revenues are generated within the Entertainment Golf and Traditional Golf segments. The following tables disaggregate revenue by category: entertainment golf venues, public and private golf properties (owned and leased) and managed golf properties.
Three Months Ended March 31, 2021
Ent. golf venuesPublic golf propertiesPrivate golf propertiesManaged golf properties (A)Total
Golf operations$3,421 $19,172 $14,719 $15,849 $53,161 
Sales of food and beverages4,802 1,855 1,273  7,930 
Total revenues$8,223 $21,027 $15,992 $15,849 $61,091 
Three Months Ended March 31, 2020
Ent. golf venuesPublic golf propertiesPrivate golf propertiesManaged golf properties (A)Total
Golf operations$3,910 $16,023 $13,655 $15,037 $48,625 
Sales of food and beverages6,207 4,285 2,018  12,510 
Total revenues$10,117 $20,308 $15,673 $15,037 $61,135 
(A)Includes $13.8 million for the three months ended March 31, 2021, and $13.3 million for the three months ended March 31, 2020, respectively, related to management contract reimbursements reported under ASC 606.

4. SEGMENT REPORTING
 
The Company currently has three reportable segments: (i) Entertainment Golf, (ii) Traditional Golf and (iii) corporate. The Company has determined that its chief operating decision maker (“CODM”) is the Chief Executive Officer and President, who reviews discrete financial information, including resource allocation and performance assessment, for each reportable segment to manage the Company.

The Company's Entertainment Golf segment, launched in 2018, is comprised of Drive Shack venues that feature tech-enabled hitting bays with in-bay dining, full-service restaurants, bars, and event spaces and the Company's new Puttery sites. As of March 31, 2021, the Company operated four Drive Shack venues across three states which are located in Orlando, Florida; West Palm Beach, Florida; Raleigh, North Carolina; and Richmond, Virginia. Puttery remains under development and the first two venues are expected to debut in Dallas and Charlotte in summer 2021.

The Company's Traditional Golf business is one of the largest operators of golf courses and country clubs in the United States. As of March 31, 2021, the Company owned, leased or managed 60 Traditional Golf properties across nine states. 

The corporate segment consists primarily of investments in loans and securities, interest income on short-term investments, general and administrative expenses as a public company, interest expense on the junior subordinated notes payable (Note 8) and income tax expense (Note 14).
 
10

DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2021
(dollars in tables in thousands, except share data)
Summary financial data on the Company’s segments is given below, together with a reconciliation to the same data for the Company as a whole:
 Entertainment GolfTraditional GolfCorporateTotal
Three Months Ended March 31, 2021    
Revenues
Golf operations$3,421 $49,740 $ $53,161 
Sales of food and beverages4,802 3,128  7,930 
Total revenues8,223 52,868  61,091 
Operating costs
Operating expenses5,133 43,737  48,870 
Cost of sales - food and beverages1,085 1,019  2,104 
General and administrative expense (A)2,198 2,378 3,210 7,786 
General and administrative expense - acquisition and transaction expenses (B)192  4 196 
Depreciation and amortization2,952 3,221 72 6,245 
Pre-opening costs (C)556   556 
Loss on lease terminations and impairment22  3,187 3,209 
Total operating costs12,138 50,355 6,473 68,966 
Operating (loss) income(3,915)2,513 (6,473)(7,875)
Other income (expenses)
Interest and investment income 20 133 153 
Interest expense (D)(82)(2,251)(316)(2,649)
Capitalized interest (D) 8 15 23 
Other income (loss), net (114)53 (61)
Total other income (expenses)(82)(2,337)(115)(2,534)
Income tax expense  495 495 
Net income (loss)(3,997)176 (7,083)(10,904)
Preferred dividends  (1,395)(1,395)
Loss applicable to common stockholders$(3,997)$176 $(8,478)$(12,299)
Entertainment GolfTraditional GolfCorporateTotal
March 31, 2021
Total assets176,618 261,310 61,933 499,861 
Total liabilities44,951 339,447 63,081 447,479 
Preferred stock  61,583 61,583 
Equity$131,667 $(78,137)$(62,731)$(9,201)
Additions to property and equipment (including finance leases) during the three months ended March 31, 2021$3,789 $1,135 $ $4,924 
11

DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2021
(dollars in tables in thousands, except share data)
Entertainment GolfTraditional GolfCorporateTotal
Three Months Ended March 31, 2020
Revenues
Golf operations$3,910 $44,715 $ $48,625 
Sales of food and beverages6,207 6,303  12,510 
Total revenues10,117 51,018  61,135 
Operating costs
Operating expenses8,172 46,195  54,367 
Cost of sales - food and beverages1,610 2,045  3,655 
General and administrative expense (A)3,169 3,093 2,378 8,640 
General and administrative expense - acquisition and transaction expenses (B)34 122 1,022 1,178 
Depreciation and amortization3,020 3,703 71 6,794 
Pre-opening costs (C)552   552 
Loss on lease terminations and impairment 792  792 
Total operating costs16,557 55,950 3,471 75,978 
Operating (loss) income(6,440)(4,932)(3,471)(14,843)
Other income (expenses)
Interest and investment income1 15 114 130 
Interest expense (D)(105)(2,147)(526)(2,778)
Capitalized interest (D) 9 24 33 
Other income (loss), net (46)413 367 
Total other income (expenses)(104)(2,169)25 (2,248)
Income tax expense  271 271 
Net loss(6,544)(7,101)(3,717)(17,362)
Preferred dividends  (1,395)(1,395)
Loss applicable to common stockholders$(6,544)$(7,101)$(5,112)$(18,757)


(A)General and administrative expenses included severance expenses of $0.1 million for the three months ended March 31, 2021, and $0.7 million for the three months ended March 31, 2020.
(B)Acquisition and transaction expenses include costs related to completed and potential acquisitions and transactions and strategic initiatives which may include advisory, legal, accounting and other professional or consulting fees.
(C)Pre-opening costs are expensed as incurred and consist primarily of venue-related marketing expenses, lease expense, employee payroll, travel and related expenses, training costs, food, beverage and other operating expenses incurred prior to opening an Entertainment Golf venue.
(D)Interest expense included the accretion of membership deposit liabilities in the amount of $2.0 million for the three months ended March 31, 2021, and $1.9 million for the three months ended March 31, 2020. Interest expense and capitalized interest are combined in interest expense, net on the Consolidated Statements of Operations.

12

DRIVE SHACK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2021
(dollars in tables in thousands, except share data)
5. PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION

The following table summarizes the Company’s property and equipment:
 
 March 31, 2021December 31, 2020
 Gross Carrying AmountAccumulated DepreciationNet Carrying ValueGross Carrying AmountAccumulated DepreciationNet Carrying Value
Land$6,770 $ $6,770 $6,770 $ $6,770 
Buildings and improvements144,134 (42,391)101,743 142,635 (40,198)102,437 
Furniture, fixtures and equipment51,422 (26,220)25,202 51,622 (24,422)27,200 
Finance leases - equipment32,661 (14,920)17,741 34,339 (15,296)19,043 
Construction in progress16,207  16,207 13,975  13,975 
Total Property and Equipment$251,194 $(83,531)$167,663 $249,341 $(79,916)$169,425 

6. LEASES
The Company's commitments under lease arrangements are primarily ground leases for Entertainment Golf venues and Traditional Golf properties and related facilities, office leases and leases for golf carts and equipment. The majority of lease terms for our Entertainment Golf venues and Traditional Golf properties and related facilities initially range from 10 to 20 years, and include up to eight 5-year renewal options (see Note 13 for additional detail). Equipment and golf cart leases initially range between 24 to 66 months and typically contain renewal options which may be on a month-to-month basis. An option to renew a lease is included in the determination of the ROU asset and lease liability when it is reasonably certain that the renewal option will be exercised.
Lease related costs recognized in the Consolidated Statements of Operations for the three months ended March 31, 2021, and March 31, 2020, are as follows:
Three Months Ended March 31,
20212020
Finance lease cost
Amortization of right-of-use assets$1,467 1,532 
Interest on lease liabilities325 341 
Total finance lease cost1,792 1,873 
Operating lease cost
Operating lease cost8,904 9,267 
Short-term lease cost340 428